10 June 2008

Global Climate Change: World Bank Says, Oil Will Come Down Hard; Sovereign Wealth Can Fund Climate Fight

So, this morning on CNBC's Squawk Box, the show that never met a bear it didn't like, Uri Dadush, the dowdy and drowsy chief of International Economics at the World Bank, told the lovely and smart Becky Quick (she's quick too) that oil will be at $95/barrel by end of year and $88/barrel by 2010.

Watch video: Squawk Box

But how does that jibe with what the World Bank's Latin America chief, Pamela Cox told Reuters today that, "essentially, emerging economies can help fund the fight against climate change through sovereign wealth funds, swollen by oil and other exports receipts"?

"'It would be great if some of these sovereign wealth funds started investing in alternative technologies, some of the climate change funds that are being put forward,' Cox said, but added that the World Bank could not tell countries how they should invest their sovereign wealth."

"Emerging economies control up to US$3 trillion in sovereign wealth funds," according to Reuters, much of which have been padded by skyrocketing oil and commodities prices," along with bulging trade imbalances.

But those sovereign wealth funds will be a lot less swollen at $95-88/barrel.

Meanwhile, CNBC reported that oil prices fell today, despite an earlier advance to $137 on greatly reduced oil consumption projections from the Energy Department.

"The Energy Department, in a monthly report, indicated that high prices are cutting oil consumption more than expected in the industrialized world," according to CNBC. "Consumption is now expected to fall by 240,000 barrels a day in 2008; last month, the department forecast consumption would be unchanged from 2007 levels."

Still a long way to go from $131/barrel to $95. And it remains to be seen what this news will have on investments in climate change initiatives and alternative energy?

Very little, it appears.

According to Reuters, some emerging economy oil exporters are already planning clean energy and other climate initiatives:

--OPEC is planning a US$750 million research fund into burying greenhouse gases underground and has committed about US$35 million so far.

--The United Arab Emirates has launched a $15 billion "Masdar Initiative" to help plan for an era of falling oil reserves by investing in low carbon-emitting energy like solar power.

--Tokyo will contribute US$1.2 billion to the planned US$10 billion of developed country Climate Investment Funds (CIF) administered by the World Bank.

--The United States has pledged US$2 billion to the CIF and the UK will add part of a 800 million pound (US$1.57 billion) environment fund to the mix.

--The CIF will invest roughly US$5 billion each in funds to help developing countries cut emissions of planet-warming greenhouse gases, and to plan for climate change.

But how much of this could materialize without oil prices being what they are? And what happens if the oil bubble bursts or tankers are sitting just beyond the Verrazano Narrows waiting for the signal?